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Friday, October 26, 2007

Our financial plan

When Lindsey at Enjoy The Journey put out a call for reader's favorite frugal bloggers, I was excited about finding a few new sites to add to my list.

After reading the comments, I realized that unlike many personal finance blogs, Like Merchant Ships rarely mentions money. You know, what to do with it? Here's why:

I am not an expert. I'd much rather send you to Dave Ramsey, whose advice we follow.

When we were struggling with how to live on less (and like it), I found it most helpful to read the nitty gritty. So in the short amount of time I have to spend online, I try to throw out what I'm learning, in bite-size chunks, with occasional posts about contentment, stewardship, and consumer culture. Oh, and the yard sale finds!

Every family needs a financial plan, but all the planning in the world won't save you money if you neglect the daily details.

So what exactly do we do with our money?

Until the last year or two, we funneled most of our cash flow into my husband's graduate tuition and our series of fixer-upper houses, leaving only enough for an emergency fund. You could say we invested in real estate and education instead of stocks. It was a good gamble.

Now that graduate school is completed, we've become more aggressive about retirement. Neither of us expects an inheritance. My husband pays into a pension plan at work, and each month we scrape the checking account to fund our Roth IRAs.

We set aside a sliver of each paycheck into a money market account for future expenses: a car replacement, the new year's health insurance deductible, etc.

With my husband's next job move, we'd like to sell this house, take the equity, and pay cash for an old-fashioned farmhouse.

It sounds a little selfish, but we are not saving each month for our children's college fund. Given our ages and compound interest, we've decided our money will work harder in a retirement account. My husband and I both earned full college scholarships, so there's some hope that our children will be as blessed. If not, we will get creative as the time comes.

We both carry term life insurance, though I wish we could have afforded a little more. We paid a lawyer to write our will, including our wishes for guardianship of our children. We have a safety deposit box for sentimental keepsakes, family photos on CD, and important documents.

Meredith, thanks for your insight!!! Right now we're not saving for college either---and it isn't due to our age, it is the sheer fact we have no money extra to do it (right now). When the debt is gone, we'll start saving. I'd rather be debt free than have debt and be scraping up a college account I can barely fund anyway.

Also, I'm not against the idea that kids might have to work parttime while in college. I did. And, I had a FULL scholarship. But I worked to pay for clothes, parking, extras, and so on. It didn't kill me, it made me a better person, really.

Right now what I'm panicking about is BRACES! I have 3 kids with horrible mouths (beautiful, but full of teeth and in one child's case missing adult teeth that will require implants!). Our dentist has already rolled her eyes and said "honey, I feel for you!"

So...I wonder, how the heck will we pay for orthodontics times three, which around here runs about $7K per kid. I feel like a horrible mom if I don't fix their teeth, but then again, I think, they can do that when they're older if they want to? I dont' know!!!!!!

Over at Lindsey's, I mentioned what I did not as a criticism (at all!), but to point out that there's two ways we all need to be coming at this finance/frugality thing. I love reading your blog to find ways to make the details of life beautiful while living a frugal life! I also am a Dave Ramsey fan, and need higher-level financial plans to make the frugal life work.

Both aspects are so valuable, and I appreciate you sharing your day-to-day 'details' in your home!

Hi Meredith-I'm a long time lurker here and have recommended your site to friends. Your articles are so insightful and just right on the money so many times.

Our family is also trying to live as frugally as possible while raising our 3 blessings. I have to say that I do not think it selfish to NOT fund college for your children. We don't have anything saved for our children's education; their future (as well as ours) is really in God's hands. Or, there are just too many variables in that equation for us to consider. Not to mention the fact that we/they COULD borrow for college, but we CAN'T borrow for retirement.

Our family, like yours, made a little money buying and fixing up houses along the way, but we are now in a house/neighborhood that we fell in love with at first sight, so I guess the journey has changed course for us. It's been so much fun reading about your last 1? or 2? moves. I can completely relate to so much of it. So, you can bet I'll contine reading your blog as long as your writing it. Keep up the good work!

We also are not saving for college educations for our two kids. They do have a nice chunk from Grandparents gifts though. We stress one small gift and then money for college for their birthdays and Christmas. We feel that one parent at home right now to raise them is more important than me working to pay for college later.

One more family not saving for college. Instead we are putting the money into our retirement & Roth iras. I believe if we got in a bind we are allowed to take out one time without penalty for education.

Joanna, I didn't take it as criticism at all. It was a great point! For all our money-saving posts, most frugal homemaking blogs don't mention personal finance much. That's why I thought people might be interested in a one-time peek at my family's financial plan.

After this, I'll stick to what I know best...and watch Get Rich Slowly for more tips.

I'm a Dave Ramsey fan too although we had only heard of him in the last two years...by then we had already established a savings pattern and decided to continue. We have put a little aside for college $100/month/child since they were born. We plan for me to reenter the work force to pay for the rest of college. We wish to give our children a debt free start. We've also done some retirement savings but nowhere near the amounts the "experts" recommend. We've just done what we can which is all one income families can do. We've done the insurance and will thing too and it does help you sleep better at night.

Meredith,Thankyou for sharing your financial goals. We too are following Ramsey's plan. Your goals have inspired me to keep going! I have 2 kids in college right now. They both received full scholarships and in fact one gets a reimbursement from the school because she receives so much in scholarship money.

I like Dave Ramsey. Fifteen years ago, I devoured an excellent Jane Bryant Quinn book. Twenty five years ago, I read Sylvia Porter's book for teenagers. No expert can tell you exactly what to do--for Christians it requires discernment. You and your husband have discerned each financial decision along the way and found God's will for your family. So have we. The eldest of my nine children started college this fall. I tell all of my older children, that if God's will for them requires a college education, He will find a way for them to receive it. They must pray for guidance and be prepared to work hard. God's specific answer will be different for each child.Annie

Well, we are very frugal and are saving for our child's (soon to be children) education. My husband took extra time to get through college due to the workload of trying to fund college while completing college, and he doesn't want that for our kids. I think college is a priviledge, but such a necessary and important one if we can help our children achieve it. I still expect them to work hard for it and for COL that goes along with it, but I want to give them a boost if I can. I also think it helps teach them about money if gift from us or family sometimes come in the form of college fund contributions, rather than more material possessions.

I am certain the ability to save for them will fluctuate over the years. I am about to leave my job to become a SAHM and we now find ourselves part of the sandwich generation, needing to provide, in part, for our parents needs.

For those in the sandwich generation, I have read that we should put our money in the order of ability to earn. Our parents first (as they now have less earning power or ability), our retirement next, and our children last (for the very reasons you all state).

I am going to go against the general grain here! My husband and I were young parents, rearing our four children while pursuing our undergrad and grad degrees, with no debt whatsoever. When our oldest was ready to graduate high school, we felt we were barely on our feet ourselves and didn't have anything at all to help them. However, we were completely COMMITTED to helping them, and I believe God honored that. My husband received some bonuses, the kids received excellent scholarships, they worked very hard in high school and through college, sales went well in a home business for a few years etc. All four graduated from prestigious schools, including 2 Ivy Leagues and had no debt, or at most, about $2500. Was it easy? No. Do we have a fortune set aside for retirement? No. But I firmly believe that this will all fall in place because of our commitment to our children. My own personal conviction is that helping them with their future is all part of the responsibility we have as parents. It's only going to get more difficult as the years pass for today's young people.

We won't let our children go through college with student loans. To that, we are firmly committed. One benefit of raising children without debt is not saddling them with new debt as they make their way into the world.

That may mean that I pursue full time work during their college years, or work at an employer which will also pay their tuition.

But for now, we believe that putting money aside for retirement will allow us more flexibility later. Our money can continue to grow even as we divert future cash flow to tuition.

I am in such agreement with you about kids NOT graduating with a mound of student debt!! I have seen so many young couples get married and become overwhelmed with debt. I think when we allow our kids to become saddled with huge debts while they are in college, we are signing them up for a future that includes both parents working out of necessity. (How can a young couple keep the mom at home if they have student loans, car payments, mortgages, and then just the day-to-day high cost of living?) We strive to stay debt-free, and doing so through the years has allowed me, and not a substitute, to raise our children. We haven't saved anything for college, either, but we are looking seriously at some fully accredited, online programs so that our son can continue to live at home, work on earning his degree, and save money for the future! The online college option is not a fringe thing anymore (there are some wonderful Christian books out there on that subject), and it allows families to help their children at least start their undergrad studies without amassing a huge debt load. We are also planning on using our local junior college which has an excellent reputation,and has very reasonable rates. I think college is like so many other things that we approach with a frugal mindset- it might seem like "everybody" does it only one certain way, but if we are creative, we can find alternative routes of getting to the same goal!

You could have knocked us over with a feather when my children decided to go to private Christian college, because my husband is only a public servant and I do not work. Yes, we used our life savings so they wouldn't have to take on debt, but it was God who really provided their college education. He worked out everything from a variety of sources. Just a thought that sometimes God has a different plan for college for His children----maybe it wasn't frugal, but it was very worthwhile for them to go there. Ruth

We saved for college. One child squandered the money, the other got full scholarships. The squanderer is now a mom and thinking about returning to school-but I am not sure if we should finance a second time around.UGG!

About the teeth, I think it is very important to get them fixed if they look bad, even more so than college. I say this because I had terrible teeth growing up and I was made fun of for them. After I got braces I looked and felt 100 times better and had more confidence. People do judge, and people with cosmetically bad teeth appear poor and uneducated. I honestly don't believe I would have accomplished as much as I have in life if I still had my bad teeth. If its a small problem don't worry about it, but if they are really messed up I'd make fixing them a top priority.

Ditto retirement savings vs college savings, and hoping for scholarships as I received, but we are committed to having our kids be able to focus on college (including the social life which was not something either of us got to enjoy) without too much worry about money or taking on serious debt. For us, that goal and the ages at which we were first blessed with a baby is much of the reason we chose to have a small family. I know that many others choose differently and of course I respect their point of view. Alison (now signed into blogger as Tubo Family)

Here Here on kids not starting out with college debt! What a blessing that would be! My in laws are not money wise and my Hubbie and I had to learn through quite a few mistakes...so we have Hubbie's school loans! Fun! My parents did not allow their children to take out school loans... 2 out of the 3 of us attended and finished college and both my brothers worked through school, stayed at a local college, in order to save on room/board... I enjoyed reading your post! Nice to see your family being so focused, driven and disciplined!

i appreciate the clarification about student debt and i totally agree. we are in a totally different financial place than ALL of our friends, who have mounds of debt. all kinds of debt. we have been frugal and careful to avoid debt (except our mortgage, which we are working towards paying off early. we also do the DIY fixer upper deal.)i was just blogging about frugality and money on my own blog, because i just had a conversation with my MIL about our financial situation. i was floored to learn how wrong her impressions are of our money situation (she thinks we earn WAY more than we do) and how opposite her memories are of her contributions to my husband were during college. my husband and i were together in college, so the conversation made me so uncomfortable, i had to cut her off!

Thank you for not saying you are not saving for college because it "builds character" in kids to be starving. I like your "creative when the time comes" attitude better than when parents who had their own tuition paid for by their parents don't pay it forward to their kids with the excuse of character building. (See? My parents didn't pay mine, and I turned into a whiny entitled little brat anyway.)

We do plan to save & pay for our kids college, at least tuition/books, they may have to work to cover their own living expenses. Hopefully they will also have scholarships going to help us out! Have you heard about the IRA's you can get for kids? They can tap into them penalty free to pay for college or a first home, or they can let it accrue longer until their own retirement. I think this is a super way to divert savings to your child, but to ensure the money is used for something responsible. That is where we plan on putting our long term savings for our children once we get that going. For now, we save spare change & put them in their saving accounts.